Over the last two decades, while income gaps between OECD countries have narrowed, gaps between regions remain significant and within many countries have grown. Large metropolitan regions have continued to pull away from other areas, many of which are confronting shrinking, ageing populations and lower quality infrastructure and public services. Impacts of recent shocks, including the COVID-19 pandemic and Russia’s war of aggression against Ukraine, and megatrends, threaten to widen gaps between regions, deepening the longstanding geography of inequalities.

Over the last two decades, levels of gross domestic product (GDP) per capita have converged across OECD economies, driven in large part by higher growth in lower income economies. However, at the same time, over half of 27 OECD countries with available data saw income inequalities between their regions widen and in most other countries, including in those where regional income inequalities declined, they remained significant. Overall, over the last two decades, four trajectories emerge:

The global economy is facing mounting challenges. Growth has lost momentum, core inflation is persistent and confidence has weakened. Russia’s war of aggression against Ukraine pushed up prices substantially, adding to inflationary pressures at a time when the cost of living was already rapidly rising around the world. While the global economy seems to be turning a corner, uncertainty is high. This global outlook is translating into different outcomes across places and risks exacerbating already high and persistent regional inequalities in many OECD countries.

The chapter explores the evolution of regional inequalities in OECD countries over the past two decades. It connects trends in where people and economic activity are located to the evolution of inequalities between regions. The first section explores the (re)allocation of people across regions. The following section looks more specifically at trends in regional income inequalities, identifying growth-inequality paths in OECD countries and assessing how differences between metropolitan versus non‑metropolitan regions have driven regional inequalities.

This chapter explores how regional productivity contributes to income inequality between regions. It is articulated in four sections. The first section describes the nexus between economic activity in tradeable sectors and productivity inequalities. The second highlights the importance of lifting productivity growth in all sectors, focusing on the role of technological change, business dynamism and innovation as drivers. The third shows how managing the potential gains and risks from trade contributes to regional development. The fourth section outlines the case for a transition towards both productive and green sectors.

The chapter discusses how readiness to respond to change is critical to secure prosperity and social cohesion in the next 20 years. The first section focuses on the value of leveraging strategic foresight to manage transnational and intergenerational risks related to megatrends and shocks and to future-proof regional development policy. The second proposes three scenarios for OECD countries and regions in 2045 and what these different pathways could imply for regional inequalities and policies. A final section sets out ways forward to future-proof regional development.

The chapter discusses the consequences of leaving persistent regional inequalities unchecked. The first section describes how, when left unaddressed, these disparities can threaten economic growth, the provision of public services, trust, political stability and a just transition. Governments in OECD countries need to act now to ward off persistent divides between regions. The second section of the chapter presents a policy roadmap along five key priorities to guide these efforts.